ENRON AUDITOR - Destroyed files

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Enron auditor destroyed files Top Bush aides talked with CEO about bankruptcy, its implications

By William Neikirk and Jeff Zeleny, Washington Bureau. Naftali Bendavid of the Tribune's Washington Bureau contributed to this report Published January 11, 2002

WASHINGTON -- The investigation into the collapse of Enron Corp. widened Thursday as the company's auditor, Arthur Andersen LLP, admitted destroying an untold number of documents relating to the Houston energy firm while the White House disclosed that Enron Chairman Kenneth Lay last fall contacted two Cabinet officers about the firm's pending bankruptcy.

As the White House sought to contain election-year political damage from the company's extensive ties with the Bush administration, Atty. Gen. John Ashcroft and the entire U.S. attorney's office in Houston recused themselves from a newly opened criminal investigation into Enron's failure.

Ashcroft had received campaign contributions from Enron during his unsuccessful re-election bid for a U.S. Senate seat from Missouri. In Houston U.S. Atty. Michael Shelby said many prosecutors in his office, including himself, "have family relationships with individuals who are arguably affected by the Enron bankruptcy."

For the first time, the White House disclosed that Lay, a close friend of the president, had called Treasury Secretary Paul O'Neill and Commerce Secretary Don Evans last fall to confirm that Enron "was heading into bankruptcy." He also raised the prospect that the collapse could have major financial implications around the world, similar to those from the demise of a 1998 hedge fund, Long-Term Capital Management.

O'Neill told CNN that in the conversations on Oct. 28 and Nov. 8 Lay did not seek government assistance despite making reference to the investment company, which was the subject of a private bailout engineered by the Federal Reserve Board. O'Neill said he and Evans agreed that the administration should not come to Enron's rescue. The two Cabinet officers did not tell Bush of their conversations, White House spokesman Ari Fleischer said.

Enron revealed that Lay also called Federal Reserve Chairman Alan Greenspan about the company's problems. In a statement, the company said Lay "felt an obligation" to let Greenspan, O'Neill and Evans know about Enron's difficulties and did not seek government aid.

Bush said he was unaware of the precarious state of the company that had helped bankroll his Texas and presidential careers.

"I never discussed with Mr. Lay the financial positions of the company," Bush said Thursday in the Oval Office after ordering a review of pension disclosure rules to protect workers in other companies.

The president said he saw Lay twice last year.

"Ken Lay is a supporter," he said. "But what anybody's going to find is that this administration will fully investigate issues, such as the Enron bankruptcy, to make sure we can learn from the past and make sure that workers are protected."

Enron filed for bankruptcy protection in December, a move that proved financially devastating for employees who lost billions of dollars when the company prohibited them from selling Enron shares in their retirement accounts as the shares' value plummeted.

Auditor's destruction policy

Chicago-based Arthur Andersen, which is also the subject of congressional and government probes, said a "significant but undetermined" number of electronic and other documents related to its auditing of Enron had been destroyed or deleted. It said its company policy "required in certain circumstances the destruction of certain types of documents."

Even though Andersen said it had retained millions of documents on Enron, the Securities and Exchange Commission called the destruction of documents "extremely serious." The SEC is investigating Andersen's conduct in connection with Enron's failure.

Rep. Billy Tauzin (R-La.), chairman of the House Energy and Commerce Committee, which also is investigating Enron, said thousands of documents had been destroyed. His spokesman, Ken Anderson, said that anyone who destroys records "to try to subvert our investigation should be prosecuted."

The White House sought to get out in front of a story that seems likely to grow larger and more threatening to the administration. Congress returns Jan. 23 and will begin a series of hearings into the Enron collapse and its effect on workers.

Democrats have begun using the word "scandal" in connection with Enron and its connections with the Bush administration.

James Jordan, spokesman for the Democratic Senatorial Campaign Committee, fundraising arm of the party for the upcoming 2002 Senate elections, said Democrats will emphasize that the Bush administration had close political ties with Enron, whose executives were cashing in their stock as many of the company's workers were losing their lifetime savings.

Rep. Henry Waxman (D-Calif.), who has been pushing the White House to disclose more about its contacts with Enron, said the administration could have done more to help the company and its workers.

"The White House had knowledge that Enron was likely to collapse but did nothing to try to protect innocent employees and shareholders who ultimately lost their life savings," he said. "I am deeply troubled that the White House stood by and let this happen to thousands of families."

White House sympathy

At the White House, Bush also expressed his sympathy for the plight of the families.

"The administration is deeply concerned about its effects on the economy. We are also deeply concerned about the effects on the lives of our citizenry," he said.

The new disclosures about Lay's contacts with O'Neill and Evans, who was Bush's campaign chairman in 2000, and the destruction of documents at Arthur Andersen created new political fodder for several panels investigating Enron. A Senate investigations subcommittee planned to issue subpoenas Friday for documents at Enron and Arthur Andersen, as well as from directors and executives of Enron.

Sen. Carl Levin (D-Mich.), chairman of the panel, said: "Because these are document subpoenas, the criminal investigation will have no effect on our investigation at this time. Hearings of the subcommittee will be scheduled after the subcommittee's review of the documents."

Ashcroft's recusal, along with that of his top aide, David Ayers, who was his campaign manager in the 2000 Missouri Senate race, also could lead to fallout the administration would find undesirable. Ashcroft received $57,499 from Enron and its executives in that race, according to the Center for Responsive Politics.

Pressure is beginning to build for appointment of a special prosecutor to look into the case. Although the independent counsel law expired in 1999 after the impeachment of President Bill Clinton, the attorney general has wide discretion to name a special counsel.

Larry Noble, executive director of the Center for Responsive Politics, said an outside counsel is needed now.

"With Ashcroft's involvement and now recusal, and with President Bush's relationship with Ken Lay, there are real concerns about the Department of Justice being able to handle the investigation," Noble said.

White House spokesman Fleischer said Bush trusts the Justice Department to handle the case.

"The Department of Justice has conflict-of-interest rules, and if there is anything that the attorney general is aware of that would trigger it, the president knows he will take responsible action," he said.

In seeking to control political damage from Enron's collapse, Fleischer said the American people don't have the tolerance to endure "a partisan witch hunt." He said that Enron contributed to Democratic and Republican candidates.

Enron generous to GOP

The Center for Public Integrity, a non-partisan campaign-finance watchdog group, said top Enron executives contributed nearly $800,000 to Bush, the Republican and Democratic Parties and members of Congress. Only one-tenth of that money went to Democrats, the center said.

During his daily briefing, Fleischer was placed on the defensive as questions mounted about the broadening investigation into how the world's largest buyer and seller of natural gas fell into financial ruin. He downplayed the telephone calls to O'Neill and Evans, saying it was not uncommon for administration officials to be asked for help for a struggling company or industry.

"Bankruptcies happen in our economy," he said. "It's not uncommon for people who are in the community, business community or in the labor community, to talk to a Cabinet secretary to tell the financial status of their business."

-- Anonymous, January 11, 2002


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